Giving cash to the poor is the best way to fix poverty

The evidence suggests cash transfers to poor people - with no strings attached - makes a real diffe

OPINION: They might not be popular, but cash transfers with no strings attached are the best bet for reducing family poverty, writes Jess Berentson-Shaw.

"Unconditional Cash Transfers work better than almost anyone would have expected. They dent the stereotype of poor people as inherently feckless and ignorant".

This is the conclusion reached by The Economist in a feature on giving cash to the poor. It neatly summarises the evidence regarding what works best to improve the lives of the poor and strikes at the heart of the prejudices we hold about those in poverty.

In 2016, the Morgan Foundation will release the findings of our investigation into the crisis of family poverty in New Zealand. It certainly is a crisis - between 18 and 29 per cent of our one million children are excluded from the opportunities most kids enjoy because of inadequate family resources. When kids don't reach their potential this costs us all – the bill is estimated at $8 billon a year.

We all know the story: families in poverty live in cold overcrowded houses, and their children end up in emergency departments struggling to breathe. Children in poverty seriously injure themselves, suffer injury at the hands of those who are supposed to care for them, and rely more frequently on social services. Irrespective of their innate abilities, they are less prepared for school, slower to progress there, leave school early, and as adults more likely to end up on low wages, unemployed or potentially turning to crime. Children growing up in poverty live shorter, less happy, and more difficult lives.

So like many before us, we asked "what is the single most effective action we can take to improve the lives of families and children in poverty in New Zealand right now?" The answer from the evidence is clear and conclusive: we should give them money, no strings attached, especially when the children are young.

Boost the incomes of the poor with no conditions attached? Cups of tea will be spat onto the newspaper across New Zealand. However, when we brought together the highest quality evidence, the science was clear. Many will claim there is no silver bullet for fixing child poverty, but the evidence suggests they are not quite right. The best evidence we have tells us that boosting the incomes (without strings attached) for our poorest families will close about half of the gap in health, education, and employment between the haves and the have nots.

Don't believe it? Let's look at some of the studies.

In a "natural experiment" called the "Great Smoky Mountains Study of Youth" in western North Carolina, profits from a casino built on an Eastern Cherokee reservation were distributed to some but not all families in the local community (tribe members received about US$4000 per adult per year). Almost overnight, the receipt of the casino profits moved some of these children (who coincidentally had been researched since birth) out of income poverty.

These children and their families underwent a remarkable change. The children became less anxious and depressed, stayed in school longer and committed less crime; parents had better mental health, and had improved parenting behaviours. These improvements were greatest for the poorest families. No such changes were found in those families who did not receive the casino payments.

Similarly in Norway in the 1970s an offshore oil field was discovered, bringing a short-lived boost in incomes to certain areas of the country. For those children born into poor households the sharp increase in incomes had a significant impact on their educational achievement.

It's frustrating that our politicians prefer to blame parents and champion policies that push poor parents into low-paid work, despite there being clear evidence that does not help children. Their approach sees the kids get dumped into childcare, and unless that childcare is very high quality (in our poorest communities it often isn't) they may end up worse off.

Pushing parents into work simply shifts them from welfare poor to working poor; between 40 and 50 per cent of our kids in poverty have working parents. The only time in recent years New Zealand reduced child poverty was when we gave cash to some poor via Working for Families.

The fact is that everyone would be better off if we just gave poor parents the money. In our next article we take a look at exactly what happens when families in poverty are given additional income to help springboard them out of the cycle of poverty (hint, they don't hit the booze and ciggies).

Dr Jess Berentson-Shaw is a science researcher at the Morgan Foundation. This is the first of three articles on poverty in New Zealand.